China strengthen the energy links with Russia

China and Russia made giant strides in energy cooperation on Tuesday by first
agreeing a price for Russian oil exported through a cross-border pipeline and
then announcing the approaching 'final stage' of work on Russian gas exports to
China.

Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced the
breakthroughs after co-chairing discussions at the Great Hall of the People.

'The two countries agreed on crude oil prices and decided to actively push
forward cooperation on oil and gas,' Wen said at a news conference after the
talks which lasted for nearly three hours.

On Jan 1 Russia started to supply China with 300,000 barrels of oil daily via
the first stage of the East Siberia-Pacific Ocean pipeline. But Russia said
China had underpaid it tens of million of dollars due to a tariff dispute.

The agreement on oil prices was matched by progress on gas.

'As for gas supplies, we are nearing the final stage of work,' Putin told
reporters.

A deal to supply the world's second-biggest economy with up to 68 billion
cubic meters of Russian gas annually over 30 years has been subject to delay due
to pricing disagreements.

Russian gas giant Gazprom and China National Petroleum Corporation signed a
framework agreement in 2009. However, Russia seeks around $300 per cubic meter,
similar to what European customers pay.

But China wants a price under $200 per cubic meter, similar to what it pays
for supplies from Central Asia.

Yu Sui, a professor of Russian studies with the Beijing-based China Center
for Contemporary World Studies, said that before China and Russia strike a
balance they should refer to the international price, which has been falling
recently.

The gap has been narrowed to $50 per cubic meter, as China raised its bid to
$250.

Putin, on his first trip abroad since he announced his plan to run for the
presidency, called for compromise.

'Those who sell always want to sell at a higher price, while those who buy,
want to buy at a lower price. We need to reach a compromise which will satisfy
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Wen said that the Chinese government is willing to strive, together with the
Russians, to build a strategic partnership between the two countries.

Wen and Putin on Tuesday also witnessed the signing of nine documents,
including a deal between Russian state bank VEB and the China Development Bank
for the Chinese bank to invest $1.5 billion in building the first stage of a
750,000-ton aluminum smelter in Taishet in Russia's Irkutsk Oblast region.

The China Investment Corp also agreed to invest $1 billion in a joint
Russia-China investment fund set up in partnership with a Russian state-backed
vehicle to promote direct investment.

China is now Russia's top trading partner, with trade volume this year
expected to exceed $80 billion, according to Putin.

Aside from the huge economic interests, many commentators and observers also
see the visit by Putin, accompanied by a 160-member delegation, as politically
significant.

Bloomberg said that the trip indicates Putin is likely to lean more on Asia
in his foreign policy and develop stronger ties with China if he returns to the
presidency in 2012.

Indian newspaper The Hindu said on Tuesday that 'Russia's new emphasis on
technological cooperation with China creates both a challenge and opportunity
for India.

'The modernization pact Putin is to sign in Beijing should give India a cue
to follow in its relations with Russia,' it said.

But Yu, from the research center, noted that other nations do not need to
worry about closer cooperation between Beijing and Moscow as relations 'benefit
regional and world peace'.

Guan Guihai, associate dean of the School of International Studies at Peking
University, said Putin's visit 'should be treated as nothing unusual under the
mechanism of regular premier meetings'.

Putin arrived in Beijing a day after Russia and China signed 16 economic and
trade deals worth $7.1 billion, mainly in the new energy and mining sectors.